There are two main approaches to liability matching within a bond portfolio.

Liability matching is when we're trying to ensure that we celebrate portfolio which can ensure that future liabilities of the investor can be met with the cash flows coming out of the portfolio.

Cash flow matching is the first approach and in this approach. We are constructing a portfolio of bonds where the cash flows from. The bonds themselves will meet the future liabilities.

The alternative approach is to match not the cash flows, but the duration of the bond portfolio to the duration of the liability and this can also be referred to as immunization.

So we're looking to hold a portfolio of bonds whose duration matches that of the liability.

So in terms these two different methods cash flow matching has the advantage of being really straightforward. It genuinely is a Buy and Hold strategy if we buy the right Bonds in the right weights today.

Such that the cash flows. They generate in the future will meet our future liabilities. Then we just need to set the portfolio up and wait and then when we get the cash flows coming in on those bonds, we can use those to meet future liabilities. We don't have to worry about interest rates changing. We only have to worry a little bit around credit risk.

Disadvantage though of cash flow matching is that we may not actually be able to find the bonds that we need to meet specifically the liabilities that we have to match the timing of those liabilities precisely.

In terms of immunization. The main benefit of immunization is that we can pretty much use any bonds that we like a much wider range of bonds is available to us to actually use within an immunized portfolio. However, this is not a Buy and Hold strategy.

Despite feeling like a passive investment that we set up a portfolio now and we'll be able to meet our liability in the future. It's not quite that straightforward an immunized portfolio does require monitoring and rebalancing over time.